SMALL CAPS FOCUS: Fusion IP upbeat as its crop of companies become more valuable

AIM-quoted Fusion IP has etched out a business as an investor in early stage technology companies borne out of Britain’s research institutions and universities.

In recent months Fusion has helped its investee companies raise around £8million, and chief executive David Baynes says there's more to come.

‘We have done a significant amount of fundraising in our investee companies,’ Baynes told Proactive Investors.
‘Hopefully by Christmas everybody will be pretty well funded. We've done well this year.’

Investing on the future: Fusion IP has agreements to commercialise the intellectual property developed at the University of Sheffield and Cardiff University

Fusion's business is rooted in the two of Britain's leading academic institutions. It has agreements to commercialise the intellectual property developed at the University of Sheffield and Cardiff University.

The blueprint of the business is quite simple. It helps set up new companies through an initial funding, in which it takes a meaningful stake in the new business.

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Fusion acts as an incubator, supporting the business financially and practically as it develops and advances its IP into a commercial product. The company then realises the added value with an ‘exit’ once the investee is well established.

The sale of Fusion investee SimCyp is a clear demonstration of the kind of return this model can yield.

Fusion’s 20 per cent stake banked $6.4million from the $32million sale of the company in February. This was a 200-fold increase on its initial investment.
Many of the group's portfolio companies are now maturing and the market conditions necessary for such exits are improving.

The Fusion IP partners themselves are fairly diverse, spanning several sectors - though many of the more mature companies primarily involve medicine or engineering.

Among the current crop of companies Diurnal, a developer of hormone therapy drugs, is one of the more advanced. And it may be one of Fusion’s investments nearest to an exit. It is currently working through a Phase II clinical trial for one of its treatments and this runs until June of next year.

Baynes says that Diurnal is becoming more valuable as it advances through the trials process.

An exit could potentially come then, he explains, or alternatively Fusion may stick with the investment for a short while longer, to try and capture more value, as Phase III studies are completed – which would perhaps take another twelve to eighteen months, according to Baynes.

Magnomatics is another exciting company in the portfolio, Baynes says. It is a developer of cog-less gearboxes, which instead uses magnetics.

Another is Asalus, which has developed a laparoscopic device that removes smoke during key-hole surgery.
Meanwhile, Seren Photonics is also very promising.

Baynes explains that Seren’s revolutionary LED technology will allow for ‘multiples’ more light to be emitted using the same amount of electrical input.

And targeting consumer electronics markets - where LEDs are used in laptop and TV screens are among the applications – it promises to significantly improve energy efficiency (and also help cool down TV’s everywhere).

Fusion at a Glance

AIM ticker: FIP

Worth: £35million

Current share price: 47.5 pence

Year high: 77.5 pence

Low: 28.5 pence

Baynes highlights the ‘staggering amount’ of growth in the LED market, and he says that Seren is making good progress, and after raising £1.7million recently it is able to further accelerate its development. He says that Magnomatics is expected to turnover £1.5million this year.

Meanwhile Medaphor, which has developed a training simulator for ultrasound scans, is growing its commercial business quickly and it is expected to triple sales to about £1.1million this year.

Asalus is set to launch it device commercially this year, while, elsewhere, contract researcher i2L is also said to be growing fast.

‘There are a number of our companies that are growing tangibly. We have good growth in the portfolio.’

On top of these revenue generators Fusion’s IP licensing business also chips in with some additional income. Baynes says this will in time become a more meaningful part of the business.

In the meantime investors can expect Fusion to set up more ‘newcos’ and carry out further funding rounds for its investees over the next six months.

And at least one more exit could come through in the next year, Baynes said.